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After the House of Representatives Monday dramatically rejected legislation to establish a $700 billion rescue package for the financial system and helped to trigger more than $1 trillion loss in the value of U.S. stocks, Congress worked Tuesday to put together a bill that could gain passage, perhaps by the end of the week.

What changed? Reports say that House members, who previously had been besieged with messages from constituents who reacted with blind anger over the prospect of laying out $700 billion in what they saw as a bailout for Wall Street fat cats, heard a very different tune Tuesday. America's investor class reacted just as angrily at the losses suffered in their retirement and college-savings accounts as what they saw as the result of the House defeat of the bill.

Stocks Tuesday recouped approximately half of Monday's losses as the DJ Wilshire 5000 -- the broadest (and I would submit, the best) measure of the U.S. stock market -- rebounded 552 points, or a bit more than the 1,024-point loss Monday. Each point of the DJ Wilshire 5000 roughly equals $1 billion in market value, so something like $600 billion of market cap was recovered as the third quarter closed out.

The calendar alone was reason enough to be suspicious of the market's gains as institutional investors could burnish their results by piling on Wednesday's advance. But there are other reasons to view the gaudy gains -- 485 points on the Dow Jones Industrials Tuesday -- with a skeptical eye.

Most particularly was the lack of a similar improvement in the global money markets Tuesday -- despite the exertions of central banks around the world. And indications aren't much better for the beginning of the third quarter Wednesday (see Bob O'Brien's Stocks to Watch blog for details.)

Still, optimism is running high that Congress can hammer together a deal on a rescue bill by the end of the week. Two changes to the bill seem to be enough to tip the balance as the Senate takes up legislation Wednesday.

First is an increase in Federal Deposit Insurance Corp. coverage of bank deposits from the current $100,000 limit. This provision has wide popular support, including FDIC Chairman Sheila Bair, both presidential candidates, Senators John McCain and Barack Obama, and many members of Congress. As RDQ Economics points out, had the $100,000 cap on FDIC insurance been adjusted for inflation, it would be up to $283,000.

Providing government insurance of bank deposits isn't without cost to a nation's credit. Ireland Tuesday announced a two-year guarantee of the nation's banks' deposits, which helped ease credit worries, which likely was heightened by what's been happening over in England. Subsequently, the cost of insuring the Republic of Ireland's dollar-denominated debt jumped 83.6% Tuesday, to $60,400 per year for $10 million for five years, according to CMA Datavision.

The other, less obviously popular proposal would be for a modification of the so-called mark-to-market accounting rules under Financial Accounting Standards Board Rule 157. The bill voted down Monday by the House included a provision for the Securities and Exchange Commission to study the matter and possibly modify the accounting rules.

This has considerable appeal in Congress, which is getting lots of blowback on this relatively esoteric matter. Critics contend having to marking assets, such as mortgage-backed securities, to a market price where no active market exists has forced financial institutions to realize exaggerated losses.

The SEC Tuesday published a press release supporting FASB 157's "Fair Value" rules, which holds assets for which there is an active market should be priced at market prices. That's a concept that's hard to dispute. An investment pool, such as mutual fund, should be valued on the basis of the quotes readily available for securities in its portfolio.

Moreover, the lack of mark-to-market accounting allowed losses to be hidden previously. In the savings and loan debacle of the 1980s, thrifts were permitted to hide losses on bad loans by keeping at face value. The accounting rules of the time allowed thrifts to act like a gambler who would go to the track and later show his wife only his winning betting tickets.

In reaction to such abuses, institutions are being forced to mark down assets even if they're not about to be sold. That's as if all homeowners were to adjust their net worth on the basis of the latest house-price index -- even if they had no intention of selling their abode and were up to date on their mortgage.

But holders of mortgage-backed securities have been forced to mark their holdings to indexes whose values have been disputed, resulting in current losses and the need to raise capital in an inhospitable capital market. Such gauges would include the ABX indices of credit-default swaps on asset-backed securities, which have been used as a benchmark for valuing MBS.

The ABX is a favorite instrument for hedge funds to sell short mortgage securities. But there are few corresponding natural investors to take the other side of those trades, so the ABX is biased to the downside, critics say. That makes the ABX a less than ideal benchmark for valuing the billions of mortgages outstanding.

Whatever the merits of that particular debate, there is good reason to pursue the via media -- the middle way between marking an institution's long-term assets as if they were to be liquidated on a daily basis and ignoring changes in values of assets that won't mature for decades.

Whether Congress can adopt such wisdom is questionable. But with the approach of the first Tuesday in November, it can be counted upon to agree on what's popular.